Profits are up at FirstEnergy after the company pulled back is risky competitive operations and began rebuilding its high-voltage transmission lines where it expects a hefty return on investments in the form of rate increases.
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View full sizeFirstEnergy's strategy to spend money on new wires and substations like this one owned by competitor NRG Energy is paying off by stabilizing income. AKRON, Ohio -- FirstEnergy's delivery rates have crept up since January and will continue to do that every January for a while, but reliability should also improve.
The company at the heart of the 2003 grid blackout is working hard to increase grid stability, simultaneously increasing its bottom line by focusing on "customer service-driven regulated growth."
Charles "Chuck" Jones, new president and CEO, described the new growth strategy as "customer driven" during the company's teleconference with financial analysts Friday.
"We have continued our work to position FirstEnergy for solid, predictable and customer service-driven regulated growth," he told them.
Translation: The company is spending a lot of money beefing up and expanding its high-voltage transmission system, including wires and substations. It expects a more than 12 percent return on those investments under Federal Energy Regulatory Commission rules.
A large portion of that transmission system upgrade now going on had to be put in place because the company decided upgrading its old power plants on Lake Erie to meet new air standards would not be economic. Those plants, including the 104-year-old E. 70th St. plant in Cleveland, closed April 15.
Since last fall, the company also has reined in the once free-wheeling and unregulated FirstEnergy Solutions, which owns the company's power plants, and which competed in wholesale markets and sold retail contracts wherever it could.
FES managed to sell more power than the company could generate. That worked out well until the "polar vortex" events of January 2014 when the price of power on wholesale markets spiked. FES now holds back a reserve of generating capacity and it buys power in wholesale markets if it is cheaper than the cost of producing it.
Those developments have stabilized the company's income and helped it turn a profit in the first three months of the year. FirstEnergy's net income for the first quarter was $222 million, or 53 cents per share, on revenue of $3.9 billion.
In the first quarter of 2014, the company posted profits of $208 million, or 49 cents per share, on revenue of $4.2 billion.
The next goal is finding ways to cut costs. Jones has launched an aggressive review of the company's supply chain costs with the goal of reducing the $2.5 billion the company spends annually.
While layoffs are not included in this review, attrition is. About 1,000 employees leave their positions every year, on average, but not all of those positions will be filled in the coming months and years, said Jones. The company currently employs about 15,500.
"Going forward, we expect to make adjustments in the structure of our organization such that those attritions should pretty much offset any inflationary pressures," Jones said in response to an analyst's question.
The company also hopes in June to convince Ohio regulators to approve its latest rate plan, which would have the Illuminating Co., Ohio Edison and Toledo Edison buy all of the power -- at whatever its costs -- from the Davis-Besse nuclear power plant and the R.E. Sammis coal-fired power plant on the Ohio River.
The deal would raise power prices. The power from the old plants often costs more than electricity generated by competing gas-fired power plants. The company has told the state that without the special deal it cannot guarantee that it can continue to operate the old plants.
Consumer groups, including the Ohio Consumers' Counsel, have argued that the deal would cost customers an extra $3 billion over the next 15 years. The company believes it will save $2 billion because wholesale power prices will inevitably increase.